Commercial Awareness Update – W/C 17th February 2025

KING CRUDE CARRIERS SA & ORS V RIDGEBURY NOVEMBER LLC & ORS [2024]

“To Contract or not to Contract… That is the Question”

Clause 2 – Buyer’s conduct

Clause 2 of the contracts for sale explicitly required lodgement of security, defined the deposit as “security for the correct fulfilment of th[ese agreements]”, and set out three conditions precedent to a 10% deposit being due:

• Buyers, sellers, and escrow holders were to sign and exchange an agreement for the contract’s execution,
• The escrow holder was to confirm in writing that accounts were open and ready to receive funds,
• Parties were to provide all documentation necessary for opening the escrow accounts.

The buyers failed to provide the required Know Your Client (KYC) documentation or sign the escrow agreement, preventing fulfilment of the conditions precedent and frustrating the contract.

Mackay v Dick states that a party preventing fulfilment of a condition precedent cannot then rely on non-fulfilment to escape liability.

Despite not signing the secondary escrow agreement, all evidence supported the assumption that the buyers intended to enter the contract, making their inability to benefit from their breach a key argument supporting the ruling.

The satisfaction of Clause 21

Clause 21 of the original contract suggests that the seller’s inability to cooperate and make best efforts to find a solution might have prevented them from claiming more than damages or even proceeding to a hearing without first attempting to settle the dispute as required.

The buyers and sellers entered arbitration, where the key issue before the Court of Appeal was whether any sum determined to be owed should be treated as a debt or as damages.

The buyers’ reliance on Clause 21 in arbitration further indicates their understanding that the agreement bound them.

Clause 13, deposits as security and the nature of debt

The buyers’ breach allowed Clause 21 to function in a way that reflected their attempt to thwart the performance of the contract. This enabled the application of The Griffon, permitting the sellers to claim a debt rather than damages.

Popplewell LJ (at para. 11) cited The Griffon, which the buyers accepted as binding. The ruling established that Clause 13’s right to compensation included non-payment of the deposit, meaning the deposit could be recovered.

As in The Griffon, the failure to pay a deposit required as security altered the contractual structure, allowing the deposit to be treated as if it had been paid under Mackay. This reinforced the seller’s right to recover the sums.

The freedom to contract

The buyers willingly entered into the Memorandums of Agreement governing the sales. No evidence in the case materials indicated a contrary intention to contract under the agreed terms.

Popplewell LJ (at para. 83) confirmed that had there been evidence of a contrary intention, it would have supported the buyers’ argument that enforcing the contract interfered with their freedom to contract.

Instead, the Court of Appeal upheld the buyers’ contractual obligations, affirming the freedom to contract and the inability to exploit contractual breaches for advantage.

Counterargument and rebuttal

Counsel for the buyers contended that damages, not debt, should be the remedy, an argument upheld by Dias J in the High Court.

However, Mackay prevents this, as damages are secondary remedies. Granting them over a demonstrated debt would undermine escrow’s role as upfront security for performance.

Case importance

The case applies Mackay, which establishes that when a party’s breach prevents the fulfilment of a condition precedent, the non-breaching party may treat the condition as fulfilled and the obligation as a debt.

This case is notable because the judgment suggests that a party’s failure to engage with contractual obligations can still indicate an intention to contract, even when their conduct appears inconsistent with that intention.

There is the question whether an intention to contract should have been inferred here. Given the value of the contract, however, it may be apt not to anticipate a Supreme Court challenge.

This ruling could significantly impact the use of escrow in future contracting practices. Escrow will likely become more common in securing performance for high-value projects, making the Court’s inference of intention upon an unsigned portion of a sales agreement particularly compelling.

Governments increasingly use trade tariffs and financial sanctions as political tools in today’s commercial landscape. Combined with complex corporate structures that obscure beneficial ownership, escrow will become even more necessary in high-value contracts.

Key takeaways

Clause 2 obliged the buyers to pay a 10% deposit into escrow, subject to administrative conditions (signing, account confirmation, and document provision). The buyer’s failure to provide KYC documentation prevented this.

Clause 13 allowed the sellers to cancel the contracts and claim compensation, which the Court of Appeal interpreted to include the deposit amount itself, making it recoverable as debt rather than damages.

Clause 21 did not provide the buyers with a viable defence, as their breach of Clause 2 ultimately frustrated the contract’s performance.

The Court of Appeal correctly applied Mackay, reinforcing contractual and equitable fairness. The judgment upholds both the integrity of contractual obligations and the role of escrow deposits in commercial practice.

The ruling reminds us that commercial actors cannot evade obligations by frustrating performance. It will likely necessitate closer legal scrutiny and revisions to standard-form shipping and commercial contracts in the coming years.

Brief History

High Court Judgment

Full Judgment

• By Natalie Campbell

 

PROPOSED CHANGES IN POLICE ACCOUNTABILITY FOR THE UK

A shift in police oversight

The UK government is preparing to introduce changes to police accountability laws, which has sparked concern among leading human rights groups.

The proposed reforms aim to offer greater legal protections to police officers who use force in the line of duty. Still, critics argue that such measures could undermine public trust and weaken oversight of law enforcement.

This review follows the trial of police marksman Martyn Blake, who was acquitted of murder in October after fatally shooting Chris Kaba. In the wake of the trial, armed officers threatened to walk out, citing fears of unfair prosecution.

As a result, the government commissioned a review into police accountability, which is expected to report its findings within weeks.

Proponents of the reforms argue that officers need more transparent legal protections to ensure they can perform their duties without fear of legal repercussions. However, human rights organisations, including Inquest, the Centre for Women’s Justice, Liberty, and Black Lives Matter, warn that the changes could reduce police accountability and create a system where officers operate with near impunity.

Key concerns raised by rights groups

In an open letter to Home Secretary Yvette Cooper, rights groups have criticised the review as a calculated effort to erode scrutiny of police actions. Their concerns include:

• Lack of prosecutions for police-related deaths: Since 1990, only one police officer has been successfully prosecuted for manslaughter, with no convictions for murder. This raises concerns about the effectiveness of existing oversight mechanisms.
• Increase in police use of force: 2023-24 saw a 10% rise in police use of force, alongside the highest number of police-related deaths in nearly a decade.
• Disproportionate impact on racial minorities: Advocacy groups highlight troubling patterns of excessive force and neglect, particularly in cases involving Black and other racialised individuals.
• Institutional impunity: Campaigners argue that officers already operate with significant legal protections, making it difficult for victims and their families to seek justice.

What are the proposed changes?

The review, conducted by a former judge and a former Scotland Yard chief, is examining multiple reforms, including:

• Anonymity for firearms officers: New legislation will grant automatic anonymity to officers involved in fatal shootings unless they are convicted.
• Higher threshold for unlawful killing verdicts: Inquests may face increased difficulty in determining that police officers acted unlawfully.
• Stricter standard of proof in misconduct cases: The government is considering raising the standard of proof in police misconduct inquiries from the civil ‘balance of probabilities’ test to the higher criminal ‘beyond reasonable doubt’ threshold. This would make it harder to disprove an officer’s claim of self-defence.

Reaction from families and advocacy groups

Families affected by police-related deaths have vehemently opposed the proposed changes.

Susan Alexander, whose son Azelle Rodney was shot by police in 2005, described the reforms as an “insult” to those seeking justice.“ Instead of working to weaken accountability, police forces should focus on meaningful change and listen to the families of those affected,” Alexander said.

Director of Inquest Deborah Coles condemned the review, stating: “This is a cynical attempt to shield the police from accountability. The changes being considered would, in effect, give officers a licence to kill.”

Balancing police powers and public trust

The government must balance the need for police officers to feel protected in carrying out their duties with maintaining public confidence in law enforcement. Officials argue that the reforms will prevent unnecessary prosecutions and ensure that officers can make split-second decisions without fear of legal consequences.

However, critics warn that reducing scrutiny could erode police trust and increase excessive force cases.

What’s next?

The review’s findings are expected to be published within weeks, and the government will then decide whether to implement the proposed changes. If enacted, the reforms could significantly reshape police accountability in the UK.

The outcome of this review will likely have long-term implications for the legal framework surrounding police conduct. Public pressure and continued advocacy from human rights organisations may influence how these measures progress through Parliament.

As debates continue, the UK must grapple with fundamental questions about law enforcement oversight, the use of force, and the balance between police powers and civil rights.

• By Nawal Abdul Wahab

 

AUTONOMOUS SHIPS

In light of the recent Artificial Intelligence (AI) Action Summit held from 10^th to 11^th February 2025, it is essential to consider the impact of automation on the shipping industry.

Having stood the test of time without significant technological development, the industry is now on the brink of change. AI applications are remarkable, facilitating navigation, propulsion, steering, and remote management of ship equipment.

However, the most exciting prospect is the creation of maritime autonomous surface ships (MASS) capable of operating independently with minimal human aid. The level of autonomous interaction will vary from ship to ship, depending on the type of software used and the missions she is assigned.

Autonomous tech uses AI to learn from its surroundings, and the International Maritime Organisation (IMO) distinguishes between the different levels of automation.

Degree one, featuring a ship with limited automated processes, still requires seafarers to operate and control key functions. However, by degree four, the ship will be fully autonomous with a perpetual development system, allowing the vessel to act proactively.

Examples

Artemis Tech’s launch of Artemis EF-12, a fully electric pilot boat, will be used to guide cargo ships crossing Sweden’s busy shipping lanes.

The vessel uses hydrofoil technology, lifting its hull above the water, reducing drag and improving energy consumption. It is also quiet, limiting its impact on sea life and the shoreline.

The Oslo fjord barge has started autonomous trials. Once completed, it will shuttle cargo across the Oslo fjord, contributing to the Norwegian farmers’ grocery chain.

Up to fifteen trailers can be shuttled per voyage, providing a much faster alternative to road transportation and creating efficient logistics. Antennas connect the battery-powered vessel to the command centre in Southampton, giving real-time ship data.

Ocean Infinity’s semi-autonomous ship is part of a future fleet of twenty-three ships which will be used to investigate the seabed for offshore wind farm operators, which will be used to investigate the seabed for offshore wind farm operators and report on the underwater infrastructure of oil and gas platforms.

The prototype is 78m (255ft) long and manned by sixteen crew members, less than half of what a standard ship requires. Live footage is relayed from the ship’s cameras and sensors to multiple screens in the command centre, miles away. The ship also features a remotely operated vehicle (ROV) that descends from the deck to survey the seabed.

The British company Sea-Kit International sent an autonomous boat to Tonga—an island near New Zealand—to study and map currently active underwater volcanoes that erupted in 2022. The boat’s winch allows instruments to be deployed at depths of 300m, and the vessel, which is only 12 m long, is relatively agile and easy to manoeuvre.

Controlled by a satellite link from 16,000km away in a small coastal village in Essex, the operators can communicate via radio with other vessels in the area, warning them of their presence when conducting research.

Legal implications

Having seen the various uses of AI within the maritime industry, it is crucial to consider this technology’s advantages and disadvantages, with a focus on regulation.

Advantages

Autonomous ships will reduce costs by removing the need to pay crew wages.

Renewable fuels like electricity and methanol will ensure the shipping industry’s transition to clean and sustainable energy.

The increased presence of technology may contribute to better health and safety management, resulting in fewer insurance or reputational damage claims caused by incidents at sea.

The International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (STCW) 1978 will be updated in its scope to include land-based crew members controlling MASS.

With the rise of MASS, electronic documentation will be used more than hard copies. If vessels become entirely autonomous, crew lists will be abolished.

Disadvantages

According to the seaworthiness requirement, a vessel must be appropriately constructed, prepared and equipped for the intended voyage. As a result, parties regularly incorporate this contractual clause into their agreements.

The law must clarify what standard of autonomous or AI-assisted supervision will be acceptable and whether responsibility for such a ship will be shifted from the ship owner to the software manufacturer.

It remains to be seen that the level of due diligence a ship owner conducts will be a reasonable standard according to English law. Therefore, a ship owner or a ship master of a carrier may not be responsible for vessel faults during the manufacturing process.

Under mortgage enforcement, the mortgagee detains the vessel in a specific port to compel the borrower to repay. Otherwise, the lender reserves the right to become a mortgagee in possession and apply or instruct the vessel manager to proceed with a judicial sale.

The problem arises when the ship is autonomous and has no crew on board. For degree four vessels with remote operators, the mortgagee must request that they redirect ship. Can the lender take over or override the autonomous system if the operator refuses?

With cybersecurity implications, it is unclear how English law will reform the concept of mortgagee in possession to cater for AI integration.

Another problem is the absence of a transparent market in the case of a judicial sale. Valuing an autonomous vessel is difficult, especially in the second-hand market.

Lenders must consider if it is worth selling the autonomous vessel by calculating a potential return on their investment to avoid loss. This unprecedented issue is currently unregulated.

The United Nations Convention on the Law of the Sea (UNCLOS) 1982 imposes duties on the flag state to ensure that a ship master manages the vessel. All vessels, owners and crew must comply with these rules. However, autonomous ships give rise to the following questions:

• Who bears the burden on MASS if no shipmaster is on board?
• Should the vessel’s operating system itself be responsible?
• If a maintenance crew of non-seafarers are completing maintenance on a MASS, should they be accountable for any AI shortcomings?

Solutions

In response to the mandatory MASS Code, which will be enforced on the 1^st of January 2028, possible solutions include:

Insurance companies offer products covering autonomous vessels. For example, companies like The Ship Owners’ Club offer to fully insure between fifty and eighty autonomous vessels. Guard also provides machinery and P&I insurance coverage.

Investment opportunities for financing:

• Construction or acquisition of such vessels.
• Research and development costs for the AI technology used to develop autonomous vessels.
• Corporate companies designing and building autonomous vessels.

To conclude, AI integration is here to stay. However, the maritime industry can select the extent of its usage, limiting it to beneficial processes through regulation preventing nefarious practices.

By Stefan Iacobescu

 

THE UPCOMING PATENT CLIFF

A patent grants holders the exclusive right to produce, use, or sell an invention in a specific country. In the UK, this right is valid for 20 years from the date of grant, allowing the patentee to set higher prices to recoup the substantial costs associated with research and development.

Once the patent expires, competitors can manufacture identical, generic versions of the drug and sell them at lower prices. While this enhances patient accessibility, it can significantly impact the patentee’s revenue.

The Patent Cliff

The pharmaceutical industry is approaching a significant challenge known as the ‘patent cliff’.

This refers to a sharp decline in revenue when patents on highly lucrative blockbuster drugs expire, opening the market to cheaper, generic alternatives. Between now and 2030, the biopharmaceutical sector will face several high-profile expirations, potentially reshaping the competitive landscape.

Among the blockbuster drugs affected are Merck’s Keytruda, Bristol Myers Squibb’s (BMS) Revlimid, and BMS and Pfizer’s Eliquis. Collectively, these drugs generated approximately $38 billion in sales in 2020, illustrating the significant financial stakes involved.

According to a Morgan Stanley report, products losing exclusivity through 2030 are generating a combined $183.5 billion in annual sales. Companies most exposed include Amgen, BMS, and Merck. Amgen faces a particularly steep risk as 67% of its revenue is tied to products nearing patent expiry.

Conversely, companies like Johnson & Johnson and Novo Nordisk are better positioned due to lower exposure rates. Once generics enter the market, revenues from these drugs could drop sharply, compelling pharmaceutical companies to rethink their strategic approaches.

To counter these challenges, many companies invest in research and development, explore mergers and acquisitions (M&A), and pursue secondary patents to maintain market advantage.

M&A activity is expected to surge, with Big Pharma having approximately $383.1 billion in capital for dealmaking. Strategic acquisitions aim to diversify portfolios and offset revenue losses, ensuring growth in a competitive environment.

This trend is not limited to large-scale mergers but includes strategic collaborations, joint ventures, and licensing agreements. These agreements allow companies to access new technologies or expand into new therapeutic areas without fully absorbing the financial risks associated with traditional M&A deals.

Legal implications

The looming patent cliff has significant implications for the legal sector, particularly for law firms specialising in intellectual property (IP) and patent law. Pharmaceutical companies will seek legal expertise to navigate patent expirations, develop strategies to extend product lifecycles and defend against generic competition.

One strategy is “evergreening,” where companies file additional patents for new formulations, delivery methods, or slight modifications to the original drug to extend market their exclusivity. Another approach is pursuing Supplementary Protection Certificates (SPCs), applicable in the UK and EU, which can extend patent exclusivity by up to 5 years.

However, these strategies can be met with legal challenges, leading to increased patent litigation, including disputes over patent validity and allegations of infringement.

Furthermore, the anticipated increase in M&A activity will require legal professionals to play a critical role in negotiating and structuring deals, ensuring regulatory compliance, and safeguarding intellectual property rights.

The legal sector will guide these complex transactions as companies pursue strategic partnerships and acquisitions to bolster their pipelines. This is particularly relevant in light of increased scrutiny from antitrust authorities concerned about market consolidation and its potential impact on drug pricing and competition.

Legal teams must navigate these regulatory challenges carefully, balancing their clients’ strategic objectives with evolving antitrust frameworks.

• By Yman Abrate

 

IS PRIVATE EQUITY ‘INFECTING’ BRITAIN? 

Morrisons was once an iconic British household name that prided itself on building with profits instead of debt. Now, it fights to reclaim its position in the UK’s retail sector and pay off crippling debts, having suffered a loss of £1bn in 2023.

What’s behind this?

The boom in private equity activity has a role to play. More than a trillion pounds have been spent on UK private equity since the start of 2014. American private equity firm Clayton Dubilier & Rice, boasting an investment pool of over $30bn, swallowed up Morrisons for £7bn. But this is not the only English retail giant afflicted by the foreign private equity raid.

The reality is that most of the stores you see on a typical British high street today are likely to be owned by private equity investors. Wagamama, Zizzi, New Look, and The Body Shop are just a few, and WHSmith could soon be the next.

How does private equity work?

Wealthy investors pool their money into a private equity fund. After purchasing an underperforming company with those funds, the firm aims to improve its profitability and efficiency. Around five to seven years later, the firm ‘exits’ either through an IPO (where the company lists on a stock exchange to raise capital) or by selling the company at a premium to generate a healthy profit.

It seems fitting that many private equity companies opt for a tree logo to symbolise the practice of turning ‘mere seedlings’ into profitable, fruit-bearing trees.

However, this commonly cited explanation is missing something. The Guardian’s Alex Blasdel suggests something more sinister should replace the ‘tree’ analogy.

After a virus invades the cells of a target organism and injects its RNA, it hijacks and drains the host’s resources to reproduce rapidly. Private equity firms don’t just use their funds to acquire a company. They usually rely almost entirely on debt (or leverage) and then use the company’s assets as collateral on the loan.

This is the primary tool in the industry’s arsenal: the leveraged buyout. Private equity managers resort to ruthless means to close the debt and improve their profit margins. Some wipe out the workforce, eliminating a company’s existing management team and replacing it with wealthy new executives.

A particularly notorious trick is the ‘buy, strip, and flip’, in which the firm liquidates its assets to repay investors and offers considerable profits to partners before selling the company to new investors to carry the burden.

Debt, debt, and more debt! 

It is no coincidence that one in five companies goes bankrupt within 10 years of being acquired by private equity. Once inside, viruses do not care about the host’s cells—they often kill them during aggressive reproduction.

Morrisons is one such example. Founder Sir William Morrison attributed his success to building with profit instead of debt. But private equity turned that around.

When Clayton Dubilier & Rice acquired the company, interest rates were attractively low. But they soared as the economy lugged out of the pandemic, which means that around half of Morrison’s debt (c. $3bn) has suddenly become expensive. So, when the cost-of-living crisis hit, competitors Aldi and Lidl could cut prices and bring in customers.

Conversely, Morrisons could not afford to do the same since it could no longer sustain its debt repayments. This meant that, for the first time in history, Morrisons surrendered its place to Aldi as the fourth-biggest UK supermarket in 2022.

The US private equity giant also has a track record for wreaking havoc in its home territory. In 2005, Clayton, Dubilier & Rice acquired car rental giant Hertz by leveraging almost $7bn in debt.

Instead of growing the business, the firm focused on squeezing profits out to pay dividends to managers and investors. It achieved this by taking on an additional $1bn in debt six months into ownership, tipping the debt-equity ratio dangerously close to collapse.

Upon exit, Clayton, Dubilier & Rice left the company with a debt-to-asset ratio of 95% and little cash on hand. Struggling to pay off these debt repayments, the company filed for bankruptcy in 2020.

Debenhams, Toys “R” Us, HMV and other well-known names have also been victims of ruthless private equity strategies like “tax abuse, pension dumping, job losses and asset stripping”.

Why are British companies being targeted?

Over the past two decades, the volume of buyouts has been more significant in the UK economy than in any other advanced market, including America, where private equity began.

Why is this?

British companies are known for being cheap. Recent geopolitical events have widened the valuation gap between US and British companies. 2021 saw a record number of foreign takeovers of UK companies, marking a 400% rise since 2015.

Analysts at the Tony Blair Institute for Change find that a ‘Brexit discount’ was applied to UK-based companies, with a 14% gap within just one year of the 2016 referendum, which widened to 25% by 2019. The Brexit discount made it attractive for foreign companies to snatch up undervalued British firms from the public markets.

Analysts at Bloomberg suggest that COVID-19 compounded the uncertainty created by Brexit. At the pandemic’s break, average interest rates in the UK hit record lows of just 0.1%, meaning debt was attractively cheap. The leveraged buyout became incredibly popular. Since then, interest rates have soared, and private-equity-owned companies are struggling to pay off this expensive debt.

The battle for private equity mandates

Analysts at KPMG suggest that private equity deal activity in the UK will only increase through 2025 and 2026.

The volume of UK private equity activity remains highly lucrative for American law firms. The Financial Times finds that private equity heavyweights like Paul, Weiss, Latham, and Watkins contribute to a ‘US invasion’ of London, luring talented partners from British rivals with multimillion-pound pay packages.

Traditionally, market-dominating English firms are beginning to crack down on their private equity practices to defend their turf and hold onto client mandates.

• By Pratheesh Prabakaran